Commissioners of Customs and Excise v Royal Society for the Encouragement of Arts
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE SCOTT BAKER,MR JUSTICE SCOTT BAKER |
| Judgment Date | 29 November 1996 |
| Judgment citation (vLex) | [1996] EWCA Civ J1129-3 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CO/1378/96 |
| Date | 29 November 1996 |
[1996] EWCA Civ J1129-3
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
CROWN OFFICE LIST
Royal Courts of Justice
Strand
London WC2
Mr Justice Scott Baker
CO/1378/96
MR K PARKER QC (Instructed by HM Customs and Excise Solicitors Office, London SE1 9PJ) appeared on behalf of the Applicant.
MR A HITCHMOUGH (Instructed by Band Hatton and Company, Coventry, W. Midlands CV1 2FY) appeared on behalf of the Respondent.
( )
Friday, 29th November 1996
This is an appeal from a decision of the V.A.T. Tribunal released on 11 March 1996. The Respondent to the appeal is a charity. The Tribunal held that the provision of certain posters to the Respondent was a zero rated supply. The Commissioners contend that V.A.T. was payable at the standard rate. The amount of tax involved in this appeal is small, but the decision will affect other charities and I am told that the revenue implications are considerable. The Tribunal had allowed an appeal by the Respondent under section 83 of the V.A.T. Act 1994 against an assessment dated 16 November 1994 issued by the Commissioners.
The appeal turns on the true construction of Item 8 of Group 15 of Schedule 8 to the V.A.T. Act 1994. Schedule 8 is concerned with zero rating. Group 15 deals with charities. The Respondent charity is registered for V.A.T. as part of a group registration. Part of the group is known as the Royal Society of Arts Examination Board (R.S.A.E.B). The R.A.S.E.B. dealt with the production and distribution of the posters or advertisements in question. Another company in the group is called Progress House Printers Ltd. (P.H.P). P.H.P, as its name suggests, did the printing. The design was done outside the group, and the posters were finished off outside the group. P.H.P. charged R.S.A.E.B. separately for each job.
The Legislation
Group 15 within schedule 8 of the V.A.T. Act 1994 confers zero rating on certain supplies to charities. Item 8 is in the following terms:
"The supply to a charity, for the purpose of raising money for, or making known the objects or reasons for the objects of, the charity, of:
(a) the broadcast on television or radio or screening in a cinema of an advertisement; or
(b) the publication of an advertisement in any newspaper, journal, poster, programme, annual, leaflet, brochure, pamphlet, periodical or similar publication; or
(c) any goods or services in connection with the preparation of an advertisement within (b) above."
One issue before the Tribunal was whether a slogan comprising two words "recognising achievement" which appeared on the posters in question and, as I understand it, on all the Respondent's other advertising material are sufficient to denote charitable objects. The Tribunal held that they are. The Commissioners have accepted that decision for the purposes of this appeal, and there is accordingly not any dispute that the supply was for a purpose falling within the opening words of Item 8.
There was, therefore, but one issue on the appeal and this was to the meaning of (c) above. The Commissioners' contention runs thus:
(i) 8(b) zero rates the supply to a charity by a third party of the service of publishing a qualifying advertisement in one of the qualifying printed media;
(ii) 8(c) zero rates the supply to a charity of goods or services in connection with an advertisement falling within 8(b), namely an advertisement published by a third party and subject of a supply by such third party to the charity; and
(iii) does not extend to the supply of goods or services to a charity where there is no primary supply at all to the charity of the publication of any qualifying advertisement, but the charity intends to use such goods or services for the purpose of carrying out its own in-house advertising activities.
The Respondent on the other hand contends that the zero rated goods and services in (c) are required to have been supplied in connection only with the preparation of the advertisement and not with its publication. This was the conclusion reached by the Tribunal. On this basis (c) is, as it were, a free standing provision and not a narrow extension of (b).
If the Respondent's contention is correct, many supplies of goods and services to charities not linked to a publication qualifying under (b) will nevertheless fall to be zero rated. All that needs to be established is some connection with the preparation of a qualifying advertisement.
Mr. Parker QC, who appeared for the Commissioners, explained that the assessment in the present case arose out of what is known as self supply. Self supply is a statutory fiction, its purpose being to put the charity which obtains the supply of goods 'in-house' in the same position vis a vis V.A.T. as the one that obtains the goods from outside. The statutory fiction of self supply however only relates to the supply of goods and does not impinge on the supply of services. A charity can therefore do its own publishing without being caught by any statutory fiction. The fact, however, that the assessment in this case arose out of self supply is immaterial to the outcome of the appeal. That is common ground. The issue is, self supply or outside supply, whether the supply was zero rated.
By way of background Mr. Parker drew my attention to section 1(1) of the V.A.T. Act 1994 and the distinction the legislation draws between the supply of goods and services. He pointed out section 5(2) which defines supply as including all forms of supply, but not including anything done otherwise than for a consideration. He then went on to 5(2)(b) which provides that anything which is not a supply of goods but is done for a consideration …….. is a supply of services. The legislation is drawn for the incidence of the tax to be wide ranging. This is apparent from section 4. Section 30 provides for zero rating. Schedule 8 sets out various supplies that are zero rated and it is Group 15 that covers charities.
The main thrust of Mr. Parker's argument is that the construction for which he contends is borne out by the structure of the legislation in the way it has been interpreted by the courts and also by the historical development of what ultimately became item 8 of Group 15.
In some cases the supply of services includes the provision of goods. It is a composite supply. However the supply may properly be classified as a supply of services notwithstanding the ancillary provision of goods. Where the supply of services is dominant, the provision of goods may be subsumed within it. See, for example, C.C.E. v Wellington Private Hospital [1995] STC 628. It is not untypical to find a supply of goods with a supply of services. Whether a supply is a single supply or separate supplies of goods and services is a question of law (see British Airways PLC v Customs & Excise Commissioners [1990] STC 643.
Returning to the present case, Item 8(a) is clearly referring to the supply to a charity by a third party of services (television, radio or cinema advertising). Likewise, Item 8(b) is dealing with the supply to a charity by a third party of services, namely publication of a qualifying advertisement in one of the qualifying printed media.
The supply to a charity of such a service (publication in one of the qualifying printed media) will often involve the provision of ancillary goods (e.g. artwork) in connection with the preparation of the advertisement. If the same third party supplies both the service of the publication and the ancillary goods in preparation of the advertisement, no difficulty arises. The supply of the ancillary goods is subsumed within the supply of the service to the charity of publication, and the whole value of the supply benefits from zero rating under 8(b). The problem arises where one party supplies to the charity the service of publication of the advertisement and another party provides for consideration ancillary goods in connection with the preparation of the advertisement (e.g. the artwork). In that case the suppliers are different and the provision of the ancillary goods by one party cannot be subsumed into the supply by another party of the service of publication; the provision of the goods must be treated as a separate supply of goods. Such a separate supply would not, without express legislative provision, fall within the zero rated service of publication. A charity that had the artwork etc done by a separate supplier would be at a tax disadvantage as against the charity which obtained the same goods from the publisher of the advertisement. The former charity, unlike the latter, would have to pay V.A.T. on the value of the separate supply of ancillary goods.
Mr. Parker argues that an examination of the legislative history shows why Item 8 is to be found in its present form. It has been drafted as it has for the express purpose of dealing with this situation.
The starting point is the Finance Act 1972 Schedule 4 Group 5. This was a general zero rating provision, not limited to charities. The focus is on the supply of services. Next came section 11 of the Finance Act 1985 which abolished zero rating for newspaper advertisements entirely. The next thing that happened was that special provision was made for charities by The Value Added Tax (Handicapped persons and Charities Order) 1986. Paragraph 4 brought back into zero rating:
"The supply to a charity of a publication in any newspaper, journal or periodical of an advertisement, which is for the raising of money for, or making known the objects or the reasons for the objects of the charity."
I emphasise the words: "The supply ….. of a...
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